HR Magazine, April 2001: Discounts Not To Be Discounted

At Chambers & Chambers Wine Merchants in San Francisco, the entire staff gets together every Friday afternoon for bread, cheese and wine. The 4:45 Club, as the 85 employees refer to it, allows them a chance to taste either wines new to the market or wines that Chambers currently offers as specials. “And then, what is even nicer, is that employees then get a chance to purchase the wine at a discounted rate,” notes Kris Carey, the executive assistant/sales liaison at the company.

Companies in a wide range of industries offer their employees discounts on their products and services, ranging from clothing to medical services, from cars to housing. And they’re not offering these services merely as a nice employee perk. Here’s why.

Good Business Sense

Offering substantial employee discounts on products and services can work as an incentive to recruit and retain employees. In fact, many retail companies find this perk to be one of their strongest selling points, especially in attracting part-time employees.

That’s true for Sears, Roebuck and Co., says Peggy Pawlter, a Sears spokesperson in Hoffman Estates, Ill. Sears offers all of its 300,000 employees a 20 percent discount on apparel and a 10 percent discount on other products. In fact, Pawlter believes some part-time employees work at Sears just to get the 10 percent discount on popular products, such as Craftsman Tools.

Another bonus: Employee discounts provide an excellent way for employees to become more familiar with the products they are selling. And if they are using the products or services themselves, they can become better spokespeople for the company.

Chambers Wine sells high-end wines, says Carey, which makes it essential for employees to be familiar with the products they are selling.

“Because we can buy the wines at a discounted rate, we all try different ones and share our views on them,” she notes. “For example, over the holidays, everyone had a special wine or champagne that they tried for New Year’s. So, afterwards, we all talked about how well the wine worked with different foods and how the bottle is holding up. In that way, we all learn more about the different wines, which helps us help our customers find the best wines to suit their needs.”

The experience of using the service also can give employees a different view about their company because they experience the service as if they were customers.

Starwood Hotels and Resorts Worldwide Inc., based in White Plains, N.Y., offers heavily discounted rooms to its 120,000 employees at its hotels worldwide. “While they are staying at these hotels,” explains Alain Ané, vice president of HR, “our employees get to experience what our customers experience. They get to understand the service levels as they are typically delivered to our guests. So, whereas, it is about pride of ownership, it is also an educational opportunity, which lets them get a very different perspective about their own roles when they are serving our customers.”

The plan also makes great business sense, says Ané, “A room is a commodity, and if you don’t sell it that night, it’s lost. So, why not offer it to the associate base?”

Greg Gentry, administrator of compensation and benefits at Erlanger Health System, in Chattanooga, Tenn., agrees with this logic. “When we look at benefits, we believe they should also fit our business needs. And offering employee discounts on our services does just that. It looks good to the employees when we give them $400 off their co-payment for inpatient services or a $250 reduction for outpatient care. But, in addition, it makes sense to be filling those extra beds and outpatient surgical suites that are available.” Gentry also notes that it encourages the company’s 3,300 employees to use Erlanger facilities and services instead of going to the hospital’s competitors.

Another reason why many companies offer discounts is because it is an industrywide practice. Edward Miller, manager of corporate news at Ford Motor Co. in Dearborn, Mich., which has more than 148,000 employees in the United States, notes that, in the car industry, all major automakers offer some type of discount for their employees to buy or lease cars.

“The plans may differ somewhat, but all of them offer some type of plan,” says Miller. “But what happens in Detroit is that people tend not to gravitate too far away from their home car company. So, offering a good employee discount that is available also to their family members and friends helps us be sure that our cars get out there and are seen.”

Because most industries offer some form of discount to employees, to compete for talented employees you should either match or surpass the industry standard. “It’s a benefit that is expected, that is used and that really helps,” says Pawlter. “I can’t imagine not having one, particularly in the retail business.”

Eligible Employees

Most companies offer discounts to both full- and part-time employees, although the discount may vary for different groups of employees. At Starwood, for example, full-time employees receive 25 nights per year at a discounted rate, while part-time employees receive 10 nights.

Family members often get discounts, too. Starwood and Ford all make the benefit available to immediate family members and to domestic partners. Some companies even let their employees’ friends in on the benefit.

Full-time Sears employees’ families are eligible, while part-time spouses can get the benefit after the employee has been there one year. At Ford, employees get discounts for up to four cars a year for themselves and family members (A Plan), and they also are allowed to enroll three friends in the company’s Friends and Family plan (X Plan), which offers a discount, although not as extensive as the one for relatives. Ford even offers a plan for its retirees (Z Plan).

Chambers Wine offers discounts to both relatives and friends of employees. “They choose from a specific list of wines, which we call our ‘The Friends of the Company Book,’ although it doesn’t list all of the wines that employees can buy at a discount.” The discount is 10 percent for these friends vs. 20 percent for employees.

Employees are usually eligible for discounts beginning the first day of their employment. Miller jokes that it can be a smart idea to offer this benefit immediately. “If we have new employees who come in driving a Honda, it’s nice to go ahead and get them into a Ford.”

At Erlanger, however, employees must be on the hospital’s health care plan before they are eligible for the discounts on medical services. Eligibility starts the first day of the month following their 30-day anniversary with the company. á

Discount Parameters

When deciding who gets the discount and how much, most companies look at data from their industry associations to determine the standard. Or, they will informally poll their competitors. Sears does both, notes Pawlter. Sears finds out about industry standards either through the National Retail Federation, which tracks benefits, or through informal and formal networking with people in the industry, she says.

John Cullens, vice president of BG Personnel Services in Dallas, which placed more than 400 people in property management jobs last year in Texas, notes that the standard rental discount for the industry is 20 percent, without regard to the price of the property. “Sometimes,” he points out, “even with this discount, some workers still cannot afford to live at the complex where they work. That is why, often, the company offers employees discounts at any of the company’s properties.”

Starwood bases its discount on the location and usual average market rate that the hotel typically commands for the room. Employees pay either $29, $49 or $69 per room, a substantial savings. For example, says Ané, a room for which the employee would pay $49 would usually cost $200 or more. Availability, however, is based on occupancy rates of the hotel, and employees have to make the reservations no more than 45 days before they plan on staying there.

Starwood’s human resources and operations division reached the decision regarding associate discount rates. “We knew that the average should not be more than $50 and that we should also have a distinction between properties and/or locations that typicallycommand higher room rates,” explains Ané. “The $29, $49 and $69 rates seemed to make sense, and a decision was made according to the annualized average room rate of the previous year at each hotel.”

Discounts also may vary depending on the product or service. Ford, for example, has several plans from which employees may choose. They may buy a new or used car, or, depending on their position at the car manufacturer, they may lease a car, all at substantial savings. What they pay, however, depends on the plan they choose. New cars, for example, if bought by the employee or his immediate family, can be purchased at dealer’s cost. Friends of the employee who are eligible for the X Plan pay approximately 4 percent more than dealer cost.

Erlanger Health System also has various discounts for different services. Employees receive a $400 deduction from their $500 co-payment for inpatient services, $250 from their $250 co-payment for outpatient services and $25 from their $100 emergency department co-payment. In addition, Erlanger offers a 20 percent discount on food in the cafeteria and at the Lifestyle Center, the hospital’s community-based wellness facility.

Preventing Employee Abuse

Employers considering offering a discount sometimes worry that employees will abuse the benefit. This problem rarely occurs, and there are some simple ways to protect the company, says John Smoyer, SPHR, an HR consultant located in Mesa, Ariz., who serves on the Society for Human Resource Management’s Compensation and Benefits Committee.

Protection will depend on the type of product or service. “If you worked for Hallmark cards, say, and an employee was suddenly buying tons of cards and wrapping paper at discount, you might want to check them out to see if they have their own card shop operating out of their basement,” he explains. “But discounts on products that are high-ticket items probably won’t be abused, simply because of their cost.”

Most companies have some type of tracking mechanism to determine if their employees are using the discount—and not abusing it. Often, that tracking can be as simple as Sears’ method of assigning cards to the employee and their eligible family members. Or, it can entail setting a limit on maximum usage, such as Starwood’s cap on yearly use or Ford’s cap—four cars a year on its A Plan and three cars a year on its X Plan. Other companies, such as Chambers Wine, set no limits; Chambers also doesn’t track how much individual employees are buying.

They’re Worth It

Employee discounts cost the company little time and money because it only takes a minimal amount of effort to order the extra inventory and to track usage. The payoff, however, is more than worth it, says Smoyer.

“It really enhances employee loyalty, helps with recruiting and makes better sales people out of your employees because they know the product and services better,” he says. “Moreover, the company still makes a profit off of it, so it becomes another market for their merchandise. And, it’s a great tool for finding out if you have a good product or not.”

He adds, “I mean, if you have a product that none of your employees want, that should tell you something.”

Nancy Hatch Woodward is a freelance writer based in Chattanooga, Tenn., and a frequent contributor to HR Magazine . She can be reached at Hatchwood@aol.com.